Thursday, December 1, 2022

Samsung Electronics faces yet another crisis over amendments to Insurance Business Act

On November 7, Democratic Party of Korea lawmaker Park Yong-jin asked the National Policy Committee to assist in revising the Insurance Business Act. Legislators from the ruling and opposition parties will discuss how to handle the matter at a meeting next week.

Problems reappeared after a lapse of 5 years, and Samsung Electronics once again faced a crisis. If the bill is amended and passed by the National Assembly, Samsung Life Insurance and Samsung Fire & Marine Insurance will receive 25 trillion won in Samsung Electronics shares, which could seriously affect the governance structure of Samsung Electronics.

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The revision is to calculate insurers’ stock and bond holdings at market value based on acquisition costs. Under current law, major shareholders and subsidiaries of insurance companies cannot hold more than 3% of their total assets. Samsung Life’s net worth is about 310 trillion won, which means its fixed holdings should not exceed $9 trillion or more.

Based on acquisition costs, Samsung Life’s stake in Samsung Electronics is less than 3%. The base year for the calculation in this example is 1980 when the share price of Samsung Electronics was 1,072 won per share. At this value, Samsung Life’s current stake in Samsung Electronics is worth 544.4 billion won or more.

However, based on the market value, the amount and ownership ratios are around 30 trillion won and more than 8.5 percent, respectively. In this case, the insurance company must sell more than 21 trillion won of Samsung Electronics shares. The amount rises to 25 trillion won or so when Samsung Fire and Marine Insurance, which holds a 1.49 percent stake in Samsung Electronics, is included in the calculation.

According to experts, turning Samsung C&T into a holding company is unlikely. “For Samsung C&T to become a holding company, its Samsung Electronics ownership ratio must be raised to at least 30 percent, which requires 68 trillion won,” one of them explained, adding, “The company needs to sell construction arm or Samsung Biologics shares to prepare this money and this is unlikely.”


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